Maintaining status quo will require a 2.1 percent increase in Rochester’s property tax levy for 2020.

A proposed city-wide property tax increase of nearly $1.58 million would maintain city staffing and programs, as well as planned projects and debt payments.

“We’ll build the budget from there,” City Administrator Steve Rymer told the Rochester City Council Monday during an early budget review.

The budget review, an early discussion before the more detailed and serious budget discussions yet to come, gave City Council members and the public an early glimpse of the financial situation of the city to maintain services and complete necessary projects in the coming year.

To maintain local services at this year's level, the operating budget would have to rise by $7.2 million, from $186.5 million to $193.7 million. Most of that increase could be covered by revenues other than property taxes. Among them is a projected $2 million gain in general fund revenue foreseen from the city's lodging tax. The city will realize some savings on salaries, as recently retired employees are replaced on the books next year by new employees with lower salaries.

Thus, Rymer said, some departments are scheduled to see budget reductions, while others see increases.

“It’s not just carrying over what was adopted this year,” he said, noting staff looked closely at the cost of maintaining the same level of service.

A much bigger change appears likely to come in the capital improvements budget, which shows an $87.8 million increase for next year, to $175.3 million.

Capital improvement projects are largely funded by sources outside of local taxes. In fact, Rymer said, just 5.1 percent of the capital budget is funded by property taxes. Much of the rest comes from state and federal grants, private contributions and other sources.

Rymer said the capital budget "is likely going to change" before year-end, noting that outside funding needed for some of the projects may not prove to be available for 2020, delaying some of the work listed among next year's capital projects.

Such changes are not likely to have an effect one way or another on next year's property taxes.

Rochester once again showed itself to be a vibrant, growing city, posting a healthy increase in local property values. In 2019, the taxable value of city properties rose $930 million, or 8.1 percent. The citywide value is now $11.5 billion.

The increase is from rising values on existing property, as well as values of wholly new or redeveloped properties.

Dale Martinson, the city’s director of finance and information technology, said early estimates show an even faster rate of increase appears likely next year: 9.2 percent. That includes a 2.4 percent increase based on new construction and a 6.8 percent based on property appreciation.

Such increases, Martinson said, do not automatically produce new tax revenue. Local taxing bodies — cities, counties and school districts — set tax levies, and individual tax bills are calculated using property values to determine each property's share of the whole.

“We actually do not get any additional taxes, no additional money, just because the community continues to grow,” Martinson said.

“When the Hilton Building pays a big property tax bill, we get nothing more for that,” he added. “It just takes whatever you levied and spreads it over the valuation of the property.”

Individual tax increases can also be affected by changes in assessed property values, which Council Member Michael Wojcik noted the city does not control. Property values used for tax purposes are set by the Olmsted County assessor using state formulas.

“If we do nothing, some properties are going to see substantial tax increases, and it has nothing to do with spending at the local level. It has to do with equations we don’t control,” Wojcik said, predicting increases on home values will likely be in play during the next tax cycle.

Rymer noted there are many more steps to developing the overall budget for the next year, including preparing proposed budget modifications, which could add staffing, new programs or equipment for the year.

Department leaders will develop the potential budget modifications in the coming weeks, with plans that will be reviewed by the City Council Aug. 26, Sept. 4 and Sept. 9.

The council plans to set a maximum allowed levy on Sept. 16. Once approved, the levy amount can be adjusted down, but cannot be increased when the final budget is adopted in December.

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